Summary: The rise of inequality is one of the greatest challenges of our time. A new report provides even more documentation about the gravity of the threat. Will this spark action by America’s people? Or are the 1% right — that they are best fit to rule and that we are sheep?
It all starts with rising inequality
Inequality is one of the greatest issues of our time, as for the fifth decade the 1% continues to skim off most of America’s increased productivity. The Urban Institute has published yet another report documenting it: Nine Charts about Wealth Inequality in America. It is well worth reading, loaded with powerful information. Here is one of its most interesting graphics — an interactive graphic showing the wealth held by each percentile of Americans (see the report for details).
Consequences
Much of what we love about America was true only for a moment. A large middle class was created from public policy changes made during the fires of the Great Depression, WWII, and the Cold War. Most of us still see that image as America. Each day it becomes less true.
After 1970 the Cold War cooled. Social cohesion and popular enthusiasm were no longer important, so our ruling elites began the long process of returning America to its Gilded Age base state. Unions were crushed, antitrust enforcement reduced (allowing massive concentration of corporate power), profit margins skyrocketed, borders opened (more workers, lower wages), and waves of tax cuts for the rich.
The resulting slow accumulation of a larger share of America’s income and wealth by the 1% — and even more by the 0.1% — is reshaping this nation. Falling social mobility accelerates the process.
Power follows the money. Now the 1% use their increased power to change US political and corporate structures to further increase their income and wealth. The Trump Administration shows this policy at work. Their replacement for ObamaCare meant benefit cuts for the working poor and tax cuts for the rich. Their tax proposal means benefit cuts for the poor, more taxes for some of the middle class, and tax cuts for corporations and the rich. Their labor policy shifts power from unions to corporations.
As the middle class fades away, the institutions it supported re-orient towards the 1% like flowers following the sun. Charities and non-profits led by community leaders sell themselves to the 1%. Media, think-tanks, and political parties turn from seeking mass memberships to rich patrons.
Conclusions
“Pouring water on a wet rock doesn’t make it wetter.’
The rise of inequality was controversial when I first wrote about it in 2008. Nine years later it has become obvious, so conservatives have gone to their pitifully weak fallback position: it’s right and proper — perhaps even good — that the 1% skim off most of America’s growth. This should not surprise us.
The sad news is that Americans whine about this but do not ask. This encourages the 1% to continue their efforts to take control of the Republic. Our sheep-like behavior tells them that they are best fit to rule. We’re not proving them wrong.
For More Information
If you liked this post, like us on Facebook and follow us on Twitter. See all posts about increasing income inequality and falling social mobility, especially these…
- Why Americans should love Tolkien’s Lord of the Rings – we live there,
- When marriage disappears: rising inequality as the threat to the family.
- See America’s income inequality grow during 1979-2011, a driver of Campaign 2016.
- Warning: the income gap between races is widening in America.
- Liz Bennett couldn’t marry Darcy. Nor can your daughter.
There is a huge difference between dynamic inequality and stagnant inequality. The word “inequality” by itself tells you nothing about where a society has been or where it is going. Dynamic inequality is the nature of evolution, where “generate and test” results in winners and losers. That is fine so long as an established ruling class is not allowed to shut down opportunity, free speech, free association, and other freedoms of a dynamic society.
The article above seems to be describing a stagnant inequality brought on by the suppression of dynamism by the ruling classes. A palpable loss of freedom of speech and the suppression of freedom of association are just two of the freedoms being choked off. We have to break out of the bubbles and echo choirs of conventional groupthink in order to understand the best way to re-emerge into a healthy dynamism — which will necessarily manifest as “inequality,” but with a dynamic turnover that provides opportunities. Today’s stagnation is an engineered phenomenon and cannot be overturned using conventional logic and slogans.
Lawrence,
‘to be describing a stagnant inequality”
It describes a growing inequality, not a “stagnant inequality” (that phrase usually describes a situation of stable inequality, like that in many Latin American nations).
“and cannot be overturned using conventional logic and slogans.”
Why? This is quite similar to that during the Gilded Age (broadly defined as 1870 until the rollback began with Teddy Roosevelt). Similar political “logic” and methods should work today. Slogans of course are effective only in specific times and places, but are easy to manufacture.
Lawrence,
Thank you for your demonstration of what I said in the first paragraph of the “Conclusions” section.
“The word “inequality” by itself tells you nothing about where a society has been or where it is going. ”
You expect a lot from one noun. I mean, duh.
“Dynamic inequality is the nature of evolution”
I love this kind of passive-aggressive language, stating an ideology as fact. “Theft is a nature of evolution.” “Conquest is the nature of evolution.” “Rape of the weak by the strong is the nature of evolution.”
“where “generate and test” results in winners and losers”
Many forms of violence and oppression are “generate and test.” Slavery and war generates winners and losers. This is the social darwinism used to justify all kinds of oppression and violence. Lynchings, the Terror of the French revolution, the mass murders of Hitler, Stalin, and Mao.
“That is fine so long”
That is fine with you. Not so much for others.
” as an established ruling class is not allowed to shut down opportunity,”
I see you didn’t read the post. And don’t read the newspapers. Look at the low level of social mobility in America. Some data here and here. Lots more out there.
“free speech, free association, and other freedoms of a dynamic society.”
Yep, you don’t read the newspapers much.
There seems to be a great deal of confusion in the debate over inequality between the question of whether
1) the U.S. is in the process of creating a multi-generational oligarchy where a small group of ultra-wealthy families control the political debate and manipulate it to their benefit and,
2) there are large groups of Americans who, because of race, geography, lack of educational opportunity, etc. have been permanently excluded from access to the upper economic echelons of our society.
The data I have seen seems to indicate that 2) is true and its impact has likely increased in recent decades. If you grow up poor in the inner city or the depths of Appalachia, you are far less likely than an upper middle class American who attends an Ivy League school to have a shot at becoming part of the .1% in America. That sounds like stagnant inequality.
I have never seen meaningful data on question 1). Anecdotal observation seems to indicate that with regard to question 1) “dynamic” inequality holds sway but that dynamic mobility mostly applies to the ability of Americans in the top 10 or 20% to rise to the 1% or .1%. Bill Gates, Jeff Bezos, etc. benefitted from the inequality 2) in that they had access to education and social networks that enabled them to succeed whether those that did not have such access could not have. On the other hand their wealth was created because they took those advantages and made something of the opportunity they presented. My experience in dealing with successful entrepreneurs is that most of them have been responsible for creating their own success. While they may have had a head start, perhaps including access to some amount of capital created by their forebears, many of their peers with similar access have failed miserably. For now I don’t sense that we are frozen into a protected oligarchy of multi-generational wealth that can be compared with Russia under the Czars.
John,
I don’t understand why you believe #1 and #2 are mutually exclusive.
“The data I have seen seems to indicate that 2) is true ”
The data supporting #1 is also massive, even incontrovertible.
Thank you for the thought-provoking post.
What you describe is nothing new for this country and many others. The 1% have always ruled the United States.
http://www.truth-out.org/speakout/item/36500-the-1-have-always-ruled-the-united-states
Also see this:
https://www.nber.org/papers/w18396.pdf
One must define and understand exactly who the 1% are. In 2016 those classified as the 1% were making in excess of $300,000. These are lawyers, politicians, doctors, executives, investors, Hollywood stars, and sports stars, among others.
If this is considered a societal problem that must be solved, what is the solution?
If wages are a market-based form of compensation of value or for value-added to a business or institution, is Federal mandated compensation the answer? If so, which benevolent politician, whose main accomplishment – in many cases – is the ability to persuade others they will give them some benefit or another for minimal effort, can be trusted to be our payment value expert.
Most members of Congress are the financial elite with much higher net worth than the average American. Can they be trusted to accurately measure and manage the redistribution of human capital without playing favorites for political influence or doling out punishment? History has shown us the answer to that question is no.
Since the early 1900’s the rhetoric of politicians of all stripes have been too socially maneuver the citizenry into believing unequal outcomes in life – compensation for labor being one measure – corresponds to inequality.
That’s not to say inequality doesn’t exist, but the utopian idea of absolute equality does not and never will exist. It has been the state of humanity since one man first stood on two legs – leaving those still on four legs in the dust.
A modern society should make it easier for all people to succeed to the best of their abilities without the intrusion of power-hungry overseers.
That said, Capitalism, while imperfect, has been shown to be the optimum economic system to allow even the least of us the opportunity to develop and/or obtain the skills necessary to become a member of the 1%.
yahtahei,
“The 1% have always ruled the United States.”
That’s quite false. It wasn’t true at the Founding. Was only borderline true until the Civil War (e.g., note the defeat of the First National Bank by Jackson). It was very true during the Gilded Age, which is broadly speaking from roughly 1870 to the election of Teddy Roosevelt. The 1% lost power until they were defanged during the New Deal. They began to regain power roughly after 1970.
“One must define and understand exactly who the 1% are.”
It’s a just a short-hand, popularized by Occupy. In fact most power, income and wealth is held by the top 0.1%.
“Most members of Congress are the financial elite with much higher net worth than the average American.”
Since they are running America — making decisions about war & peace, spending billions — they should have higher income and wealth. Just as CEOs do.
“, but the utopian idea of absolute equality does not and never will exist.”
That is rhetoric for children and fools. To say that the extreme is impossible does not mean more moderate states cannot be achieved.
“Capitalism, while imperfect,”
Again, rhetoric for children and fools. Capitalism exists under many different social systems — from the clan-based rule of Singapore to the paternalistic German system to the socialistic nordic systems. Don’t attempt to justify the rich skimming most or all the nation’s gains by saying its “capitalism.”
I agree with the author that public policy should promote broad distribution of income and I agree with the comments that public policy should promote income mobility (a key feature of american democracy). But much of the language of this article does nothing to advance a thoughtful discussion of the topic.
The capital intensity of entrepreneurship has declined dramatically in the past 50 years. This has enabled a small group of people to build sizable fortunes, starting with nothing: Bezos at Amazon, Dell at Dell, Jobs at Apple, Gates at Microsoft, Benioff at Salesforce, Page and Brin at Google, Ellison at Oracle, Zuckeberg at Facebook, and on and on.
Two comments:
(1) If you were to remove the entrepreneurial millionaires and billionaires from the equations, then income inequality has not changed much (the vast fortunes of these few skew the math considerably). It is not accurate to suggest that there is a permanent elite class in America who is controlling all the wealth. Each generation ushers in new entrepreneurs — and the successful ones get rich.
(2) The use of the phrase “the 1% continues to skim off most of America’s increased productivity”, is unfortunate. Its the language of class warfare that serves only to sow animosity and bitterness. It does nothing to illuminate the conversation. The entrepreneurial billionaires “skimmed” nothing. They were incredible innovators who build valuable companies from nothing. They did not earn their money by taking profits from their workers. They earned their money because their founders stock become incredible valuable.
We need to promote broad based prosperity. But simply punishing innovators or pulling private capital out of the economy and sending it to Washington seem unlikely to produce the results we seek. .
mpaul,
I have seldom seen so many made-up fake news in a comment. If you wish to be taken seriously, include some cites for your bold statements.
(1) “If you were to remove the entrepreneurial millionaires and billionaires from the equations, then income inequality has not changed much”
You say that as if it’s a rebuttal of something in this post. It’s not.
(2) “It is not accurate to suggest that there is a permanent elite class in America who is controlling all the wealth. Each generation ushers in new entrepreneurs — and the successful ones get rich.”
That’s quiet false.
(3) “The use of the phrase “the 1% continues to skim off most of America’s increased productivity”, is unfortunate.”
Poor puppy. upset at language that might motivate people to act. I suggest you focus on more accurate statements, and worry less about hurting the feelings of the people running America.
(4) “Its the language of class warfare that serves only to sow animosity and bitterness.”
That’s delusionally false. It is a class war, and in history only such language motivates people to act.
(5) “The entrepreneurial billionaires “skimmed” nothing. They were incredible innovators who build valuable companies from nothing.”
That’s a Disney-level falsehood. The fraction of the 1% or 0.1% who were entrepreneurs is quite small. Most either inherited wealth or skimmed it thru things like financial games or CEO’s harvesting a substantial fraction of their corporation’s profits (something pretty unique in US history, and unknown in the rest of the developed world).
Larry Kummer, I apologize, I had assumed you were familiar with the subject matter.
Lecuna,Antonio. 2014. High Income Inequality as a Structural Factor in Entrepreneurial Activity. Journal of Technology Management and innovation. Volume 9, Issue 1.
Being the childish fool that I am, :) – I humbly offer more analysis on the issue.
“Regulations Widen Wealth Inequality” by Adam Millsap at the Foundation for Financial Education — “Occupational licensing and government regulations protect the power of established providers.”
“Five Myths about Economic Inequality in America” by Michael D. Tanner at CATO.
yahtahei,
By “more analysis” you mean “propaganda by right-wing advocacy organizations.”
The first one is a wonderful example of changing the subject. Yes, health care is a mess in the US –largely due to decades of conservative efforts to implement reforms that have worked in other developed nations. Regulations protecting established interests drive up prices — and profits. Which is why the GOP loves them. The article does not even attempt to show how this increases “wealth inequality.”
The second is just straight propaganda. They create strawman and then knock them down. Denying the vast amount of information showing that inequality has skyrocketed is, by now, just nuts. Piketty’s analysis is just a dot — and the most complex and least well-supported dot — in this body of evidence. The rest of the CATO article is mostly just misdirection. Post-1970 regulatory changes have allowed CEO’s to suck their companies profits like lampreys, private equity magnates to loot and bankrupt companies, and hedge funds to skim billions from the financial system. Calling these “dynamism” and “entrepreneurs” is nuts. They more closely resemble decay of our political, economic, and social systems.
“Regulations protecting established interests drive up prices — and profits. Which is why the GOP loves them.”
Not trying to argumentative, but are you implying that billionaires such as Mark Cuban, Warren Buffett, Oprah Winfrey, Mike Bloomberg, George Soros, J. B. Pritzker, Mark Zuckerberg, Elon Musk, or Tom Steyer, who support Progressive Democrats, don’t like or want profits from their ventures?
They support the people who design and implement regulations that protect their interests thus excluding competition, driving up prices and their profits. Aren’t they “skimming billions” from the financial system as well?
That’s politics in America. Been that way a long time. To point at one political party over another is being intentionally blind to reality.
Veblen’s leisure class turned into the 21st century’s predator class, who lack even the veneer of morality or loyalty to their fellow citizens. Changing this should be a primary goal.
However, this is not a single party issue. The Democrats under Clinton and Obama fully adopted the ideals of neoliberalism. It fulfilled their decades long plan to ditch the white working class, as documented by Thomas Frank in “Listen, Liberal”.
Hillary ignored Bill’s admonition to focus on the Midwest and the WWC. Instead, focused so much on the millionaires and billionaires, she couldn’t see the WWC as anything but deplorable.
The Democratic establishment will do everything possible to keep the economic class warriors like Bernie from control of the party.
As to the Republicans, they are fighting like crazy to prevent Trump from killing their golden goose….
Gaius,
You nailed it! I agree completely. I’m planning a post describing exactly what you describe. My theory is that the GOP is succeeding because they more easily betrayed their party’s core principles (after the civil rights legislation put the neo-confederate voters up for grabs). As we see by their current disarray, the Democrats are failing because they are suffering severe cognitive dissonance from the abandonment of their principles for the more rewarding doctrines of neoliberalism. That is, they are finding it more difficult than did the GOP to sell their party’s soul.
I guarantee that the growing inequality is done by ill gotten gain rather than gained by being useful to society or benefitting everyone.